The practical answer
An approved change to a customer contract is not automatically a separate revenue contract, and it does not always require restating revenue recognised to date. Ind AS 115 paragraphs 18–21 require an enforceable-modification assessment followed by a classification based on the added promises, pricing and relationship of the remaining goods or services to those already transferred. Build that decision before posting the change-order journal. This guide concerns entities applying Ind AS 115, not every entity using a different accounting framework.
Read the applicable text: MCA: Ind AS 115, paragraphs 18–21 and referenced measurement guidance ICAI: Ind AS 115, 2025–2026 Compendium, paragraphs 18–21.
First identify an enforceable modification
A change in scope, price or both can modify a contract when the parties approve it and it creates or changes enforceable rights and obligations. Approval may be written, oral or implied by customary business practices. An unsigned change order therefore needs a rights assessment, rather than an automatic rejection or automatic accrual. If a modification has not been approved, continue applying the Standard to the existing contract until approval occurs. Examine the evidence of enforceability rather than relying only on the purchase-order workflow status.
Approved scope can precede final pricing
Where the parties approve a scope change without fixing its price, paragraph 19 requires estimation of the resulting transaction-price change under the variable-consideration guidance, including the constraint. A project manager's expected claim value is not automatically the amount that enters revenue. Document why an estimate is included, what limits it, and which facts may change the assessment. Paragraph 19 also recognises that a modification can exist despite a scope or price dispute; decide enforceability from all relevant facts and contract evidence. Lack of a final price does not by itself negate an enforceable modification.
When a separate contract is required
Paragraph 20 requires separate-contract accounting when the scope increases through additional distinct goods or services and the price increase reflects their standalone selling prices, with appropriate adjustments for the particular circumstances. Assess both conditions. A discount is not automatically disqualifying: a supportable adjustment, such as avoiding selling costs on an existing customer relationship, can be consistent with the test. Keep the standalone-price evidence and explanation of adjustments alongside the rights analysis.
When remaining distinct promises are treated prospectively
If paragraph 20 does not apply and the remaining goods or services are distinct from those already transferred, paragraph 21(a) treats the change as termination of the existing contract and creation of a new contract for accounting purposes. The allocation pool combines original transaction-price consideration not yet recognised as revenue, including amounts already collected, with modification consideration. Paragraph 21(a) applies the pool to remaining performance obligations or the remaining distinct goods or services within a paragraph 22(b) series. Allocate that pool to the remaining performance obligations under the Standard's allocation guidance. Do not rewrite revenue already recognised merely to impose the newly blended rate on completed distinct deliveries.
When an integrated obligation needs a catch-up
If remaining goods or services are not distinct and form part of a single performance obligation already partly satisfied, paragraph 21(b) treats the modification as part of the existing contract. Reflect its effect on transaction price and progress in a cumulative adjustment at the modification date. Reassess the supported progress measure as well as price. A larger contract value can coexist with slower progress, so the adjustment is not necessarily the price increase multiplied by the old completion percentage.
Mixed cases and operational controls
Paragraph 21(c) addresses combinations of the distinct and integrated cases using a treatment consistent with those objectives. Do not force a complex project into one branch for software convenience. Prepare a bridge showing opening recognised revenue, consideration remaining, approved scope and price changes, updated allocation or progress, current adjustment and remaining revenue. Distinguish an actual modification from another transaction-price update; the existence of a revised forecast alone does not establish new enforceable promises.
Evidence that makes the journal reviewable
Attach the original contract, approval trail, enforceability conclusion, distinctness analysis, standalone-price support where relevant and calculation. Reconcile the change-order register with both the accounting ledger and unapproved claims list. A reviewer should be able to reproduce the classification and figures without inferring that billing, cash collection or management approval alone demonstrates the customer's enforceable acceptance. Record the reporting-date judgement and revisit it when evidence changes.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Additional distinct goods at supported standalone prices
An original contract covers 100 distinct units at ₹100 each, total ₹10,000. An approved change adds 30 distinct units for ₹3,000, or ₹100 each, reflecting their standalone selling price on the assumed facts. Both paragraph 20 conditions are met: account for the additional units as a separate contract. The original ₹10,000 arrangement is not repriced by this example.
Illustrative example 2: Prospective treatment of remaining distinct units
An original 100-unit contract at ₹100 per unit totals ₹10,000. After 40 units and ₹4,000 revenue, an approved modification adds 40 distinct units at ₹80 each, or ₹3,200. Assume paragraph 20's pricing condition is not met, including after appropriate adjustments. Remaining consideration is ₹6,000 + ₹3,200 = ₹9,200 for 60 + 40 = 100 identical remaining units, allocated at ₹92 each under the stated equal-value assumptions. Previously recognised ₹4,000 stays unchanged.
Illustrative example 3: An integrated obligation with revised progress
An integrated performance obligation originally priced at ₹1,000,000 had recognised revenue of ₹400,000 at 40% progress. An approved modification increases price by ₹200,000; supported revised progress at that date is 35%. Revised cumulative revenue is ₹1,200,000 × 35% = ₹420,000, producing a positive ₹20,000 catch-up. Applying the old 40% mechanically would overstate this calculation.
Illustrative example 4: A downward cumulative adjustment
An integrated obligation had recognised ₹400,000. An approved modification reduces transaction price to ₹900,000 and supported progress remains 40%. Revised cumulative revenue is ₹360,000, requiring a ₹40,000 reduction. The arithmetic assumes paragraph 21(b) applies; a distinct-goods case requires its own classification.
Illustrative example 5: Approved scope with unresolved price
An approved enforceable scope change has an estimated additional price of ₹80,000. Assume a documented variable-consideration and constraint assessment supports including only ₹40,000 at this date. With original transaction price ₹500,000, the resulting amount is ₹540,000. The excluded ₹40,000 remains outside that current measurement. This is a factual judgement example, not a statutory 50% inclusion rule, and does not by itself state revenue recognised.
Illustrative example 6: A proposal without approval
Original enforceable price is ₹500,000. A proposed ₹100,000 change has not been approved, and the evidence establishes no enforceable oral or implied approval either. The proposal alone does not turn that price into ₹600,000. Continue accounting for the existing contract under the Standard; evaluate any other existing variable-consideration rights separately rather than treating this example as a general ban on claims.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm the applicable framework | Entity's Ind AS basis and contract within Ind AS 115 scope. |
| 2 | Establish original enforceable terms | Original scope, price, obligations and modification provisions. |
| 3 | Verify approval and enforceability | Written, oral or customary-practice evidence and rights assessment. |
| 4 | Resolve approved scope with unsettled price | Variable-consideration estimate and constraint support. |
| 5 | Test additional goods or services for distinctness | Promise-by-promise analysis and existing contract context. |
| 6 | Test the paragraph 20 pricing condition | Standalone selling prices and justified circumstance-specific adjustments. |
| 7 | Select the paragraph 21 branch where needed | Remaining distinct promises, integrated obligation or mixed analysis. |
| 8 | Recalculate the remaining allocation or cumulative revenue | Unrecognised consideration bridge, allocation basis and current progress evidence. |
| 9 | Reconcile the journal and registers | Opening revenue, current adjustment, remaining revenue and change-order status. |
| 10 | Document the reporting-date conclusion | Review sign-off, supporting evidence and subsequent reassessment triggers. |
Sixteen practitioner FAQs
1. Is every customer change order a separate contract?
No. Paragraph 20 requires both distinct additional goods or services and the specified pricing condition.
2. Must approval always be written?
No. Paragraph 18 also recognises oral approval and approval implied by customary business practices.
3. Does an internal approval alone establish the customer's obligation?
No. Assess whether enforceable rights and obligations have actually been created or changed.
4. What if neither party has approved the modification?
Continue applying the Standard to the existing contract until the modification is approved.
5. Can approved scope exist without an agreed final price?
Yes. Paragraph 19 addresses that situation using the variable-consideration guidance.
6. Is the project manager's claim estimate automatically included in full?
No. Apply the measurement requirements, including the constraint, to the supported facts.
7. Does any discount fail the separate-contract pricing test?
No. The test permits appropriate standalone-price adjustments reflecting the contract's circumstances.
8. What happens when remaining goods are distinct but paragraph 20 fails?
Apply paragraph 21(a)'s prospective accounting approach using the remaining consideration pool.
9. Does prospective treatment reprice completed distinct deliveries?
Not merely to impose the new blended rate; the example preserves revenue already recognised on those deliveries.
10. Is the entire original contract price in the remaining pool?
Use the relevant consideration not already recognised, together with modification consideration, under paragraph 21(a).
11. When is a cumulative catch-up appropriate?
When paragraph 21(b)'s integrated, partly satisfied performance-obligation facts apply.
12. Can a price increase still produce a small adjustment?
Yes. Revised supported progress can offset much of the effect of a higher price.
13. Can a modification reduce current revenue?
Yes. A revised cumulative amount below revenue already recognised produces a negative catch-up in the stated case.
14. What if the modification combines distinct and integrated elements?
Apply paragraph 21(c) consistently with the objectives of the other two branches.
15. Does a revised budget alone prove a contract modification?
No. Separate forecasting changes from changes in enforceable contractual rights and obligations.
16. What should a reviewer be able to reproduce?
The approval assessment, classification, consideration bridge, allocation or progress calculation, and resulting journal.
Official sources
MCA: Ind AS 115, paragraphs 18–21 and referenced measurement guidance ICAI: Ind AS 115, 2025–2026 Compendium, paragraphs 18–21